Where I'm Thinking Out Loud about Decentralized Systems, Technology and Business

The company of the future topic (which I recently tackled here and here) sticks around. Why a second follow-up? Because I just came across a paper (PDF) by (the highly esteemed!) Yochai Benkler. It goes by the title Peer production, the commons, and the future of the firm so it naturally grabbed my attention, particularly for the title’s final part.

For those who haven’t read my original essay on the issue here’s a quick recap (though I’d still recommend reading it in full ;)): I looked at six current trends – ranging from the gig economy, microservices and blockchain to industry 4.0 and new organizational approaches – to arrive at a scenario that depicts a future company. The result was a structure that is rather small and specialized, highly networked with other such structures and largely consisting of autonomous agents. I wrote it would “resemble an aggregator (of talent) but with more elements of an actual organization compared to today’s platform-aggregators“.

In his essay Benkler comes to a similar conclusion, though from a different angle, namely his primary topics innovation and peer production. Some annotated quotes:

Classic theories of the firm are under severe pressure from collapsing transactions costs and the increasing strategic importance of incontractible aspects of innovation and problem solving. Peer production and open innovation more generally, flash teams, online labor markets for high- and low-skills, and the increasing degree to which problem-solving and innovation under uncertainty are central to growth questions the continued necessity of firms. Considered through the older theoretical lenses, classic firms appear destined to shrink towards playing niche roles where highly concentrated capital requirements persist and cannot be displaced by networks; or where obtaining and managing government-granted rent-extraction opportunities, like patents, are salient.

I’m with Benkler. I think the notion of concentrated capital requirements as the key characteristic for areas in which traditional company models will prevail is justified. At the same time, as I highlighted in the passage dealing with industry 4.0 and smart factories, it’s likely that new organizational forms might even emerge in capital-intense field like manufacturing. Automation combined with APIs plus technologies like 3D printing are the building blocks for a potential future where capital requirements for geting into manufacturing are drastically reduced.

Further:

When transactions costs are more-or-less eliminated, technology for monitoring every keystroke and contribution is ubiquitous, and innovation depends as much on prosocial and intrinsic motivations as on extrinsic motivations appropriate for agents who act under self-interest with guile, what role, if any, remains for the firm?

But as online labor markets combine with peer production to make conceivable, if not force, a fluid global market in labor and talent, the question runs much deeper. What continues to be the role of the firm where transactions costs are low enough to allow “orchestration” of networks of resources to be the sole remaining function of a firm? And if talent pools and knowledge resources can be orchestrated for particular projects, why is orchestration itself not a role that can be fluid and ad hoc?

All very good questions. Of course, Benkler doesn’t argue that we won’t have firms in the future. Neither do I. But other forms of organizing how people get together to get stuff done have been emerging for several years now and the conditions to do so only improve. Thus, I think the second answer Benkler gives regarding conditions under which we’ll rely on firms is also noteworthy:

… “high-road” strategies that invest in building the firm as a collaborative community are preferable to more transactional or efficiency-driven firms, but it suggests further that in the presence of substantially lower transactions costs and competition from nimble, flash organizations and non-market innovation, building communities of meaning around economic collaboration is the primary form of strategic advantage firms have over dynamic, fluid networks of collaborators.

Indeed, I believe a major reason why we are still going to see companies in the future is for cultural reasons. However, while people crave belonging and social contacts, this does not necessarily need to happen in the model of a firm handing out an employment contract. To be sure: It likely will due to social norms, systemic incentives (benefits etc.) but none of those is set in stone.

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My name is Thomas Euler. This blog is my public notebook. I mostly write about technology, decentralized systems and business. You can learn more about me on my website. My more polished writting is on Medium.